Gross Margin Calculator
See what share of revenue is left after the direct cost of goods.
Gross Margin
60.00%
Enter your numbers and press Calculate.
(Revenue - Cost of goods sold) ÷ Revenue
Worked example
(revenue − COGS) ÷ revenue ($100,000 − $40,000) ÷ $100,000 = 60.00%
What this number tells you
Gross margin subtracts cost of goods sold (COGS) from revenue. Which direct costs belong in COGS depends on the product and the accounting policy; keep that definition consistent when comparing periods or products.
That is what makes it the number for product economics: is what you sell priced well relative to what it costs to make. It is not the number for whether the business is profitable, because it has not accounted for the cost of running one.
Expressed as a percentage rather than a dollar amount, it compares across sizes. A $60,000 gross profit is the same figure whether it came from $100,000 of revenue or $600,000; the margins, 60% and 10%, describe two very different businesses.
When to use it
When pricing a product, judging a supplier or sourcing change, or comparing product lines on unit economics. It is also the input other calculations depend on: CAC payback, for one, is only as good as the margin fed into it.
Where it misleads
Changing which costs count as COGS can move gross margin even when the underlying business has not changed. State your cost definition before comparing results. Margin is not markup: the same gross profit produces different percentages when revenue or cost is the denominator.
Frequently asked questions
What is gross margin?
Gross margin is the percentage of revenue left after cost of goods sold (COGS): (Revenue − COGS) ÷ Revenue. COGS can include purchase, production and other directly attributable costs according to the relevant accounting treatment. This ratio helps compare revenue with the cost base used for what was sold. It does not show whether the business is profitable after its other expenses. Check that revenue and COGS cover the same period and that the cost definition is consistent across the figures you compare.
How do you calculate gross margin?
Use (Revenue − COGS) ÷ Revenue. If revenue is $100,000 and COGS is $40,000 for the same period, gross margin is 60%. Enter a COGS figure based on the applicable cost definition; do not change that definition between comparisons without explaining the change. If COGS exceeds revenue, a negative gross margin is a valid result, not a calculator error. It still does not include every expense needed to run the business.
Is gross margin the same as gross profit?
The two are closely related but not the same. Gross profit is a dollar amount: revenue minus COGS, with no further calculation. Gross margin takes that same figure and divides it by revenue to express it as a percentage. A $60,000 gross profit could mean a 60% gross margin on $100,000 of revenue, or a 6% gross margin on $1,000,000 of revenue; the dollar figure alone doesn't say which. This calculator outputs the percentage, gross margin, since it's the version that's comparable across products, time periods, or businesses of different sizes; multiplying the margin back by revenue recovers the gross profit dollar figure if that's what's actually needed.
How is gross margin different from contribution margin?
Gross margin subtracts the COGS used in the accounts. Contribution margin is usually used for a different question: what remains after variable costs of the sales being evaluated. Some cost categories may already be in COGS, depending on the business and its accounting policy, so the figures should not be compared by assuming that shipping or fulfilment is always excluded from one and included in the other. State each cost base before using either measure for a pricing decision.
What is a good gross margin?
There's no single good gross margin. It depends on the industry and business model, since cost structures vary enormously between a software product, a manufactured physical good, and a resold commodity item. A margin that would be alarmingly low for a digital product can be entirely normal for a low-markup retailer, and neither is 'wrong' in isolation. Gross margin also says nothing about overall profitability on its own, since it stops at COGS and ignores every other operating cost. Read your own gross margin over time for the same product mix instead of a cross-industry number; a shift there reflects a pricing or cost change, not a different cost structure from company to company.
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